Analysis Of The Legal Dilemma Of Valuation Adjustment Mechanism In China And Its Solution

As a new kind of investment tool,Valuation Adjustment Mechanism(VAM)was originally introduced to China by foreign investment institutions.With the development of PE,VAM has been frequently used in China’s investment activities in recent years.By using VAM,the investor and the invested company can shelve the dispute over the valuation of the invested company and close a deal.VAM enables the invested company to obtain the funds needed for development,and the investor to control the investing risk.Therefore,VAM has great practical value in China’s investment field.However,due to the lack of relevant laws and regulations,there exist many problems in the practice of applying VAM in China: the legal nature of VAM has not been determined yet and disputes over the effectiveness of VAM are frequent.In judicial practices,since VAM involves terms about shares and company assets,judges have different opinions on the application of contract law and company law.The inconsistency of judgments on VAM of courts make the legal effectiveness of VAM in an uncertain state.Investors cannot predict the legal consequences of applying VAM according to the judgments of courts,which will undoubtedly has great impacts on investors’ behavior and affects the companies who need money.In order to explore ways to solve these problems,the author analyzes the relevant practices of America,the birthplace of VAM.By learning from America,the author hopes to providepossible solutions to the problems faced by VAM in China.This paper is divided into four parts.The main contents are as follows:The first chapter is an overview of VAM.This part analyzes the main object of the paper——VAM comprehensively from these aspects: the development of VAM in China,the connotation,legal elements,background and practical value to explain the necessity of VAM in China’s capital market.The second chapter is about the legal dilemma faced by VAM.This chapter analyzes the problems faced by VAM in China from the legislative and judicial aspects.And in this chapter,the author analyzes two typical cases in detail to explain the problems.The third chapter is about American experience and its inspiration.In this part,the author analyzes the legal provisions and applications of the preferred stock in America and discusses the effects of preferred stock in solving the legal dilemma faced by VAM in China.Then,the author analyzes in detail the judgment of The Delaware Case on ThoughtWorks and its implication on handling similar cases.The fourth chapter is about suggestions on solving the legal dilemma of VAM in China.Based on the analysis and research of the previous three parts,this chapter proposes improvements that can be made in solving the legal dilemma faced by VAM in China from the legislative and judicial aspects.